The effects of costly consumer search on mergers and cartels

PhD ceremony: Ms. V. Petrikaite, 12.45 uur, Academiegebouw, Broerstraat 5, Groningen

Dissertation: The effects of costly consumer search on mergers and cartels

Promotor(s): prof. J.L. Moraga-Gonzalez

Faculty: Economics and Business

Information is costly. Hence, a consumer may decide to learn the utilities of a few available alternatives instead of searching them all. The decision to be partially informed has an effect on market prices, quantities, and location decisions of firms. This thesis contributes to the stream of economics literature on costly consumer search by addressing incentives to merge and engage in collusion. We find that high search costs prevent horizontal integration if the joint price setting is the only change after a merger takes place. However, if the firms can reallocate their varieties and establish a multiproduct shop then merging is both profitable and welfare improving. The post-merger welfare improvement comes from significant savings on consumer search costs. The incentives to collude and to deviate from a cartel decrease if the search costs increase. However, we find that cartels are more likely to survive if the search costs increase.